The lung develops from two small buds consisting of an inner, endodermal layer of undifferentiated epithelium, surrounded by mesenchyme. As gestation proceeds, the buds give rise to an extensively branched, tree-like organ containing epithelial cells specialized for different functions. For example, the proximal trachea, bronchi and bronchioles contain ciliated, secretory, and neuroendocrine cells, while the distal (terminal) alveoli contain thin Type I cells mediating gas exchange, and Type II cells specialized for production of surfactant protein. Abnormalities in the proliferation, differentiation and behavior of these cells may lead to serious pathological conditions, including the bronchopulmonary dysplasia of premature babies, cystic and interstitial fibrosis, and lung cancer. Evidence suggests that the epithelium of the entire early embryonic lung has the potential to generate either bronchial or alveolar cell types, depending on signals from the surrounding mesoderm. However, little is known about the mechanisms by which this potential becomes restricted, and how differentiated cell types are generated along the proximal-distal axis of the lung. One model suggests that the tips of early lung buds contain a transient population of multipoint epithelial stem cells that gives rise to long term self-renewing stem cells restricted to either a bronchial or alveolar fate. Alternatively, the tips may from the beginning contain a mixture of multipotent and committed stem cells. We will explore these possibilities in three ways: (1 ) identify genes preferentially expressed in the distal versus proximal embryonic endoderm and determine whether they are markers for specific cell populations in the tips of lung buds and in later embryonic and adult lung; (2) test the hypothesis that Wnt signaling from the mesoderm of lung buds plays a role in maintaining a population of multipotent cells in the underlying endoderm, and (3) ask whether endoderm stem cell lines can be derived in culture from epithelium of embryonic and adult lung.